Market snapshot

Bristol Office Market Pulse Q3 2016

In the city centre, take-up in Q3 was down on the previous quarter, although it is in line with the average take-up for this period. There is ongoing pressure on the supply of small suites, sub 5,000 sq ft, which continue to let well.

The key deal this quarter was the letting of 23,207 sq ft to OVO at Templeback, which was the larger of just two grade A deals over the past three months, the other being the letting of 6,550 sq ft at Temple Circus to RPC.

The out of town market has also performed well in Q3, and we expect this market to overtake last year’s figures by the end of 2016.  There have been a variety of deals and several above 10,000 sq ft.


In this issue:

Enquiry levels for smaller suites remain steady

  • There were 41 new office enquiries in Q3 2016, only marginally down from 44 in Q2.  Nearly half of these enquiries – 24 - were for small suites of less than 5,000sq ft.
  • There is limited activity for large requirements, although the level of enquiries for sizeable space remains high.

Local tenants are benefiting from an improving economy and while many are looking to expand into larger offices of 2,000 to 5,000 sq ft, there is a lack of supply in this size bracket.  

Take-up levels distorted by one key deal

  • Total take-up of offices in Q3 2016 (over 1,000 sq ft) was 196,064 sq ft, compared with 195,803 sq ft during the same period in 2015.
  • Total take-up is in line with the five yearly average.

The continued strong performance in the city centre has seen this year’s take-up to date exceed levels seen during the whole of 2015.   The key deal this quarter was the letting of 23,207 sq ft to OVO at Templeback, which was the larger of just two grade A deals in Q3, the other being the letting of 6,550 sq ft at Temple Circus to RPC, who were already tenants within the building.

The grade B city centre market continues to perform well with a large number of deals being done and an ever reducing supply due to take-up and the effects of PDR.

The out of town market has also performed well in Q3, and we expect this market to overtake last year’s figures by the end of 2016.  There were three key deals over 10,000 sq ft in the out of town market: the letting of Buckingham House, Filton 20 to MBDA, the letting of 1200 Parkway North to ISG Retail Ltd and the freehold sale of 176 – 178 Easton Road to Proctor and Stevenson.

To date, the UK’s decision to leave the EU has not affected office take-up in the south west region, and with an improving economy we do not expect to see any dramatic changes until BREXIT actually takes place.  


Significant transactions

Property 

Size (sq ft)
 
Landlord 

Tenant

Rent 

Lease term (years)
 
Templeback

23,027

Orchard Street

OVO

£28.00 per sq ft

12 year lease with
5 and 7 year break

Pt Ground floor Temple Circus 6,550

M&G Real Estate

RPC

£21.00 per sq ft

5 year lease


Suite 3A Spectrum
 
6,552 Alanby Commercial Property 


Kings Court Trust


£18.50 per sq ft


5 year lease

Buckingham House, Filton 20 10,982

BAE

MBDA 

£14.00 per sq ft

10 year lease with 3
and 5 year break

Park House, 1200 Parkway North

10,164

Longmead Capital

ISG Retail Ltd 

£17.25

10 year lease with 5
year break

Supply profile continues to tighten

Construction of Cubex’s Aurora, as part of the wider Finzel’s Reach city centre scheme, is now well underway with completion expected by the end of 2017.  Aspire, the other key scheme in the centre, is moving at a slower pace and timescales are now unclear.

There are several comprehensive refurbishment schemes in the city centre due to provide upgraded space by mid 2017, including One Cathedral Square, 21 Prince Street and 40 Queen Square.  These refurbishments will bring much needed supply to the market across a range of different suite sizes.

Other buildings such as One Brunswick Square and The Programme are being refurbished to provide ‘quirky’ space, aimed at TMT (technology, media and telecommunications) sector occupiers. This space will provide exposed services and unusual features.  Rents for this space remain relatively untested; however, they are expected to be in line with good grade B stock.

Prime rents remain unchanged, and with inactivity in the market and requirements for grade A space being put on hold until the new year, it seems less likely now that rents will break the anticipated £30.00 per sq ft barrier this year.  


Investment market review

  • South West office investment totaled £30m in Q3 2016, which was 78% down on the previous quarter and 63% below the five-year average. 
  • Only three offices were sold in Bristol during Q3, totaling £10.7m, all of which were out of town.  Two were sold as a package to a single purchaser. 
As we enter the final quarter of 2016 we are now witnessing stabilisation in the UK investment market after a very volatile summer following the UK’s decision to leave the European Union.

Regional offices, particularly in Bristol, remain top of the investor’s shopping list with a high level of demand for assets of £5m to £20m.  This is due to the strong occupational market and low passing rents. Although quality and location are key considerations, prices continue to be supported by strong demand for Permitted Development.

Investors remain cautious about the riskier secondary/tertiary assets where there has been some discount in pricing.  This has led to an increase in demand for stronger covenants, better locations, higher quality buildings, longer leases or where there is a compelling story for a tenant to remain in situ.  Prices remain stable for these types of asset given the high level of demand and low level of product.

Despite concerns of a quiet summer, there was a decent level of multi-sector product brought to market due to major retail funds having to sell assets in order to meet the redemption demand following Brexit - much of this product is currently in legals.

These deals have shown that investor demand remains strong from both the UK but also from overseas investors who are looking to take advantage of the weak pound.

There is still a low level of product formally coming to market as vendors are resisting selling at a time when many of the funds are still not active.  It is apparent that there are willing sellers but they will not be drawn to price - but they may be considering off market approaches.


Key investment deals

There were no office transactions in Bristol city centre in Q3.

240 Bristol Business Park and 2510 Aztec West were sold to a private overseas investor for £7.2 m – 7.42%.

  • 240 Bristol Business Park: an 18,338 sq ft office building currently let to QuinetiQ Limited, with 9.75 years to lease expiry and 4.75 years to break.
  • 2510 Aztec West, Bristol: a 10,000 sq ft office building let to Ricoh UK Limited, Parker Hannifin Manufacturing Limited and Property Solutions (UK) Limited as well as a vacant suite.  AWULT of 3.7 years to lease expiry and 2 years to breaks. 12 months guarantee on the void.
  • 2510 Bristol Business Park was purchased by Robert Hitchins for £3.5m (£235 per sq ft). The property comprises a vacant 14,900 sq ft detached office building built in 2000s and is available to let at a quoting rent of £21.50 per sq ft. 


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Peter Musgrove

0117 914 2013

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Peter Musgrove
Director - Head of Office - Bristol

0117 914 2013

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